23 November 2008

Australian Gold Confiscation

Gold confiscation is an important issue that strategic investors need to have a view on – the circumstances in which you are most likely to need your wealth safe haven is also when the risk of a Government wanting to take it away from you may be the highest. All of the discussion on this matter is US-centric and I do not recall ever seeing any commentary on the possibility of confiscation in other countries. It is a pertinent question because a fair number of Americans store their gold offshore on the simple basis that if the US Government did it once, they will do it again.

Having said that, it would be my contention that all countries have a confiscation risk on the basis that we are dealing with politicians after all – QED. The confiscation issue is therefore one of relative risk: which country is less likely to resort to gold confiscation. Being Australian, I can only focus on the likelihood of the Australian (Federal) Government confiscating gold. I would welcome discussion of this issue by locals in other countries, particularly the UK and Switzerland, given the large amounts of gold held in those countries.

The confiscation question was often raised by the clients I spoke to while working in the Perth Mint’s Depository. I should note that most of the USD 1.5 billion worth of precious metals stored by the Depository is held by foreigners. In fact, 45% of the Mint’s Depository clients are American. While some of this analysis will be specific to Australia, there will also be a fair amount that is generic to any country so hopefully this will be of use to those without gold in Australia as well.

Economic Strength

Governments confiscate gold because they need to strengthen their reserves, which is a nice way of saying no one will accept their currency and they need something of value to trade for the things the country needs. This statement raises two factors to consider. Firstly, how strong is the economy of the country, how resilient is it likely to be in the face of a deteriorating and hostile world economic environment? Secondly, how self sufficient is the country?

My simple answer to these two questions is to note that Australia is a commodity currency. We export a lot of raw material commodity stuff and food that other countries want. Sure, like many western countries, we have a reduced manufacturing capability but we can always build up that capability, whereas some countries cannot just make iron ore appear out of their ground. I therefore consider Australia relatively lower risk on this factor. We can be self sufficient. Sure we might have to do without plasma wide screen TVs, but at least we can feed ourselves.

A related issue is what gold holdings will the Government look to control when it decides it needs the asset of last resort. My view is that they are not going to bother with knocking on people’s doors to confiscate private holdings when Australia’s mines can churn out between 200 to 300 tonnes per year. The real threat is the control of mine output (i.e. buying gold at the “official price”) or nationalisation of mines as this is where the real dollars are.

Legal Mechanism

At lot of the commentary on US confiscation speculates on the likely legal form the confiscation will take, such as will numismatic coins be exempt and so on. If laws have to be passed, then opposition may be possible or at least there would be some delay within which you can prepare.

In this respect Australia has a relatively higher risk because Australian law already has a mechanism in place to require delivery of gold to the Reserve Bank of Australia (RBA) - Part IV of the Banking Act 1959. There is no need for the Government of the day to have to rush new legislation through that may attract public comment or opposition. All that is required is the Governor General to proclaim that Part IV shall come into operation. The ease with which this can occur is a negative mark for Australia. A small consolation is that we have certainty as to the legal form this confiscation will take.

As a side note for those not versed in Australian constitutional law, the Governor General is a figurehead role and is not elected. They are appointed by the Government of the day and, by convention, act on the instruction of the Government and Parliament. Most Australians would be aware, however, that the words “by convention” are crucial, as on 11 November 1975 the Governor General dismissed the Government of the day. It is therefore theoretically possible that the Governor General could bring Part IV into force against the wishes of the Government if he/she thought that it was “expedient so to do, for the protection of the currency or of the public credit of the Commonwealth” (Section 40(2)). Having said that, I would consider such a scenario unlikely on the basis that doing so would require the cooperation of the public service and result in radical changes in the operation of the gold industry. As the Governor General does not have any control over the public service or any public mandate, they would need the cooperation of the Government of the day if the proclamation was to have any practical effect.

Before you rush to deliver your gold to the RBA, note that Part IV is currently “suspended”. My blog of 04 August details the suspension by way of a transcription of a press release by the Treasurer on 30 January 1976.

It is worth noting that the Act only refers to gold, not silver. I guess this is because gold is more compact, in value per weight/volume terms, and thus is easier to transport between countries in settlement of transactions. For example, one tonne of gold is equivalent to 75 tonnes of silver (at least at today’s prices). This is positive for silver, and one can imagine that in a gold confiscation scenario that people will flock to silver for wealth/inflation protection if they cannot achieve it with gold. It is therefore likely that the silver price will move rapidly upward relative to gold.

So let’s look at our enemy in detail:

Section 41 – you will not be allowed to export or take gold out of the country.

Section 42 – you have to deliver gold you hold at the time of the proclamation or any that subsequently comes into your possession within one month. Only exemptions are gold used as part of your profession or trade or coins less than $50 in total value. The section mentions “prescribed amount” but $50 is mentioned in the attachment to the press release. Note that the section refers to the “gold content”, not “face value”. In practice this means legal tender coins or numismatic coins offer no protection and given the small value, is effectively full confiscation. The US 1933 confiscation had an exemption for gold holdings below $100 (see this article by Roland Watson for more details. Mr Watson notes that the 1933 confiscation was not confiscation as such, but a prohibition against hoarding. He also speculates that the exemption was a way of getting the average wage earner on board, as it did not confiscate their small holdings, only the "evil hoarders".

Section 43 – gold so delivered is the RBA’s, period. Any interest that someone has in it is extinguished. RBA must pay for it and will pay the deliverer. If you had an interest in that gold, you have to get your money off the deliverer. What this means is that a custodian must deliver gold held on behalf of others, and it will only get money in return, which is all it can return to you.

Section 44 – this has very interesting wording. First off it says the price is the price as fixed by the RBA. This doesn’t sound too good, as it allows for the RBA to set a really crappy price. However it says “... or, at the option of the person delivering the gold, such amount as is determined in an action for compensation ...” In practice this means that you will get the market value, as if the RBA’s price is too low there is a case for compensation.

If you think that getting market price doesn’t sound too bad, it is worth remembering that in the US after confiscation the official price of gold was increased, thereby denying the previous holders the benefit of that increase in value. While there is no official fixed price anymore, some posit that the same will be achieved by central banks first manipulating the price lower then confiscating it at this “free market” price.

In any case this is a bit irrelevant because you only end up with paper money and if you wanted that you would not have bought gold in the first place.

Section 45 – this says that you are not allowed to buy or sell gold, unless authorised by the RBA. The interesting thing about unallocated is that the gold has already been bought and thus it may be legal for the Mint to allow clients to collect their unallocated gold on the assumption that as good citizens they are requesting it so they can dutifully hand it over to the RBA, of course. This will depend upon the interpretation of “or otherwise obtain gold” within the context of the section, which is titled “limitation of sale and purchase of gold”.

Section 46 – essentially restatement of s42(1)(b), OK to have gold you are working on if that is your job. I take this to mean jewellers and other manufacturers are exempt by default.

Section 47 – OK to hold wrought gold. As “wrought” means “made in a skilful or decorative way” I take this section to mean jewellery is exempt. I think this is potentially a significant loophole as those denied bars and coins would create demand for other forms of jewellery that could also be “tradable” that creative jewellers (or a creative Mint) would undoubtedly meet.

Section 48 – the RBA can exempt anyone from any or all of these sections.

In summary, Part IV is very extensive. You can’t buy, hold or sell gold unless it is a legitimate part of your trade or in the form of jewellery. However, the phrasing of the law is all around physical as it mentions “delivery” of gold in your “possession” Combining this with section 46 raises an interesting speculation on interpretation of the law and its consequences for metal held with the Perth Mint.

Under section 46, given the Mint’s role in refining gold that the Government wants and also supplying industry with industrial forms of gold, I think it can be assumed that it would get an exemption from having to deliver its working stocks of gold. Note that this metal is what backs the unallocated precious metal liabilities of Depository clients, so the conclusion is that unallocated metal would not be confiscated. In support of this, unallocated metal liabilities are not “physical” so would fall outside the law as they cannot be “delivered” to the RBA. Certainly the Government may close this loophole, but in the extreme environment we are considering this oversight may be missed by the bureaucrats as they scramble to negotiate with an antagonistic mining industry on how the new system will work and getting real physical gold into the hands of the RBA.

My experience with the implementation of the Goods and Services Tax (GST) some years ago supports my position that unallocated will be left alone, at least initially. In discussions with tax officials the whole concept of unallocated, location swaps and such was considered suspiciously, as some bogus “construct” to hide the real transaction going on. As such they focused on physical metal movements and when title passed. I am confident that the bureaucrats responsible for implementing Part IV will similarly see industry “jargon” as a cover up and instead prefer to take what they will see as a clear-cut approach: do you have a legitimate business reason to hold gold, if not hand it over.

For this reason, and of some irony considering that a number of client’s consider allocated “safer” than unallocated, there is no potential for ambiguity with allocated metal. It is physical and has to be delivered, no matter that it is someone else’s metal as section 43 points out.

As a counterpoint, if people are not allowed to hold gold then the Perth Mint’s operations will be radically reduced as there will be no need for coins or bars (except 400oz bars) and it may be hard to justify holding as much physical backing the unallocated as they currently do. While the Mint may be able to branch out into 24ct jewellery or other product lines to take up the slack, it is doubtful this could be on the same scale as the coin and bar operations.

In summary, the best that can be said is that there is no doubt that allocated/custodial holdings are confiscatable but that unallocated is a grey area.

Management

By “management” I mean how will the senior management of your custodian (which for most people means the Perth Mint) react to the confiscation. For example, in respect of the unallocated question, will the Mint roll over and voluntarily hand over unallocated metal (or the “paper” claims), or will they not bring it to the attention of the bureaucrats.

This is a difficult question to answer and one can only look to the material published by your custodian to infer what their “philosophy” is or how strongly they feel about gold’s role and protecting your rights.

Secessionism

One factor unique to West Australia that needs to be considered in respect of gold held in that state is the highly probable emergence of the idea of self governance or secession from the Commonwealth should the Federal Government confiscate gold. One thing that struck me when I moved from Sydney to Perth was the “them and us” attitude of West Australians, evidenced in their use of “the Eastern States” to refer to the rest of Australia. I have no doubt that enacting Part IV will be seen by many West Australians as confiscation of “their” gold by the Federal Government and not in the interests of the state.

REBECCA CARMODY: As this issue has cropped up, I’ve heard politicians of both persuasions talking about secession. Would Western Australia be better off just to simply break apart?

NORMAN MOORE: Absolutely. I have no doubt that Western Australia would be one of the most successful countries in the world if it was a separate country.

REBECCA CARMODY: Is this something we should be seriously contemplating?

NORMAN MOORE: Yes, we should be talking about it. We should be talking about it very thoroughly and in a very mature way. Let’s look at what the consequences are for Western Australia if it was a separate country. We have enormous resources. We’ve got a tremendous potential future as separate country if we were to secede. To achieve that would be very difficult indeed because you actually require a constitutional amendment, I understand, which would probably not be supported by the other States because they get 30 per cent of their revenue from Western Australia.

REBECCA CARMODY: You don’t think it is likely to happen, but it is a fallback position for Western Australia.

NORMAN MOORE: There was always a unilateral declaration of independence which has been used in other parts of world. I suspect it wouldn’t happen in Western Australia. I think that Western Australians need to start talking about a future as a seceded separate nation. At the end of the day, under a centralist system in Canberra, Western Australia will always be the biggest loser. We are a long way away - out of sight, out of mind. Federal politicians simply rely on Western Australia to produce a huge amount of wealth, but, beyond that, they would not know much about what goes on here at all.

Consider also this Vista Public Lecture by Hon Richard Court AC, former Premier of Western Australia "How will the Federation look in 2020" where he says “I am not advocating secession, but if you read 'The Case for Secession' which is very thick and 'The Case Against Secession' which is very thin that was prepared in the 1930’s, the case for secession today will be even stronger if this financial imbalance is allowed to continue.” It also has a short history of Western Australia's attitude to Federation and notes that "in 1932 the Western Australian Government decided to hold a referendum on seceding from the Federation on the grounds of unfair financial treatment. This referendum was held on 8th April 1933 and it was 2-1 majority in favour of secession from the Commonwealth" but it was rejected only "because the United Kingdom Parliament could – as a matter of Constitution priority – only dissolve the Commonwealth at the request, and with the consent, of the Commonwealth. That consent had not been provided."

While secessionist sentiments are currently in the minority, it is my view that confiscation would fan the feelings of being “ripped off”. The sort of dire economic circumstances that would induce the Federal Government to confiscate may also be the extreme circumstances in which the State Government, with the likely support of everyone involved in the gold mining industry, would consider it in the best interest of the state to secede. I would further speculate that with significant amounts of gold in the ground, and an operating Mint, there is a good chance that the country of Western Australia would consider a gold backed currency – in times when currencies are failing the only way for a new country to establish the worth of its money would be to back it with gold.

Gold Currency

What if Western Australia did not want to secede or there was not enough public support to do so, but still wanted to stop gold confiscation by the Federal Government. One possibility is for the State to make gold coins legal tender. They would therefore cease to be just gold and become currency.

Section 115 of the Australian Constitution states "A State shall not coin money, nor make anything but gold and silver coin a legal tender in payment of debts." I interpret this as a State shall not coin money, period, but can make (with "make" as make law, not "manufacture") gold and silver coin legal tender.

Now if a State cannot make coins, how does the Perth Mint get away with it. It does so by going to the Treasurer and getting approval to do so under the Currency Act 1965. With the Mint's gold and silver coins, as well as sovereigns, already out there could not a State pass a law to make those gold and silver coins legal tender at their market value, not face value? Interestingly, there is no definition of "coin" so maybe sovereigns and Eagles and Maples could be included, although coin usually means "legal tender" otherwise it is a "medallion".

According to this Wikipedia entry, "Section 51(xii) of the Australian Constitution gives the Commonwealth Parliament the right to legislate with respect to “currency, coinage, and legal tender.” with Section 51 powers able to be legislated on by the states, although Commonwealth law will prevail in cases of inconsistency. Section 115 effectively makes the concurrent power in section 51(xii) exclusive to the Commonwealth. Despite this, coins of the Australian pound were not introduced until 1910. From 1901 to 1910 the states could not issue tender and the Commonwealth had not issued tender, so private currency was used as the common medium of exchange whilst the British pound sterling was the national unit of account."

This then raises the question of whether Western Australia making those existing gold and silver coins legal tender would "inconsistent" with Commonwealth law.

Part V of Reserve Bank Act 1959 states that banks or persons (but no mention of States) shall not issue bills or notes intended for circulation as money but otherwise makes no restrictions on any other legal tender.

I have looked at the Currency Act 1965 and cannot find any section prohibiting a State from declaring gold and silver coins legal tender. Section 22 prohibits persons from making coins. Section 16 says that "a tender of payment of money is a legal tender if it is made in coins that are made and issued under this Act", which the Perth Mint's coins are.

Therefore I see no inconsistency with Commonwealth law if a State passes a law making existing gold and silver coins (at their market value) legal tender. However, there is a catch. Section 23 states that "the Governor‑General may, by Proclamation, call in any coins issued under this Act or the repealed Acts before a date specified in the Proclamation."

So if the West Australian Government attempted to make the Mint's coins legal tender to stop the Commonwealth's moves to confiscate gold, the Commonwealth could just call those coins in.

Now while this investigation seems to have achieved nothing, it does raise one useful point - Section 23 is effectively another confiscation mechanism, but with the implication that it can be used not just to recall gold coins but also any Perth Mint silver coins. Note also that any proof/collectible coins issued by the Perth Mint are also done so under the Currency Act 1965 so numismatic coins clearly have no protection. Therefore, while coins have advantages when moving between countries due to their legal tender status, that legal tender status puts them at risk of confiscation, so one should prefer bars to coins if one is concerned about confiscation.

Also, as one reader has pointed out, the "calling in" could be done at the face value of the coins, which would not normally be much of an issue with base metal circulating currency but obviously a problem for gold and silver coins because the face value is much lower than the market value.

It would be interesting if US law had a similar call in provision regarding its legal tender, as this would put to bed the idea that numismatic coins would be protected from a US confiscation. This article by CMI, which is the most comprehensive I can find on US confiscation, does not mention it but nevertheless concludes that numismatic coins provide no extra protection over bullion coins or bars.

Let Sleeping Dogs Lie?

In closing, I do not feel it is inevitable that confiscation will occur in Australia, or specifically Western Australia. I hope I have shown that the potential political situation is much more fluid. However, we do have dormant legislation that can be brought into existence without any need for debate in Parliament, which I do not consider a good thing. The question I leave you with is should we leave the sleeping dog or agitate for Part IV to be removed?

Asking for it to be removed may draw attention to its existence and provoke a review of it and possible change to remove any loopholes, although this would have the benefit of revealing the Government’s attitude to gold, allowing for individuals to prepare. Leaving it means we know what we will have to deal when/if it happens (this assumes you feel there are actionable loopholes) and in the meantime not draw any more attention to gold ownership.

Other articles on confiscation (this will be added to from time to time, so please check back here if you are interested in this issue).

This article on silver confiscation asserts that silver is more likely to be confiscated because there are no large industrial stockpiles and silver is needed in many industrial applications, causing great economic problems if silver ran out/increased in price significantly.

This correspondence between GATA and the U.S. Treasury Department on confiscation, where Treasury says that the Government "has the authority to prohibit the private possession of gold and silver coin and bullion by U.S. citizens during wartime, and, during wartime and declared emergencies, to freeze their ownership of shares of mining companies" and indeed "to
seize or freeze just about everything else that might be considered a financial instrument"

1. There are vast structural differences between the gold environment of 1933 and today;
2. It would be the final coup de grace slaughtering the fragile US dollar; and
3. Fearsome social implications from Ruby Ridge and Waco style shootouts between armed goldbugs and "Federal Gold Police".

Confiscation Anatomy - A Different View by FOFOA: "... if the US ever put gold back on the table through another confiscation of its citizens' gold, the BIS would call in all of its outstanding claims in gold at the rate of $42 per ounce ... Under international law, the US is still an OUTLAW when it comes to gold! This is why gold is off the table."

Alasdair Macleod: "Confiscation requires the gold itself to be surrendered, which presumably would be the objective if a government is to add to official holdings. If gold ownership is merely banned, it is a different matter. A bullion bank holding gold in an unallocated account would almost certainly be unable to deliver physical gold if required to do so by the American government, but it would be able to close out the account for cash."

Interesting point about unallocated being closed out for cash in a confiscation. A possible reason why it may happen - if there is a (physical) run on bullion bank unallocated accounts, Governments may confiscate as cover to protect bullion banks from failure rather than any desire for the metal themselves.

Further quote: "The international nature of gold would probably require all G10 or even G20 members to agree to similar actions against their own citizens. It seems unlikely that all governments would agree to this, unless they all had their backs hard against the wall.

Miles Franklin: "But, if the unlikely were to occur, in the very unlikely event that our government issues a recall order, they would want to get the most people possible to comply with the least resistance. Since they can create all the money necessary to acquire it, with a keystroke, it makes sense that they would offer a fair and very high price for the gold – and quite possibly even offer an extra incentive like a provision where no taxes were paid on the gains. This isn’t so far-fetched since many people would be forced to liquidate outside of their own time frame and would face tax consequences that in some cases would not be to their benefit. If they didn’t make it easy and somewhat fair, many people would flaunt the law and the government would NOT get their hands on the gold they desire."

Jim Sinclair: "I am sick of all this confiscation talk of gold and even gold companies. It emanates from gold people who do not know or understand the history of gold. We condemn MSM for inaccurate, false and misleading news. I condemn gold writers who practice sensationalism, who offer their opinions as if they were facts and simply make things up out of thin air as if they were insiders privy to things that no one else is. Right now leaders of this community are printing stuff as misleading as MOPE or MSM ever have.

Eric De Groot put what I have been trying to teach you perfectly today. In the 1930s gold was to the monetary system what QE is today, a means of increasing the supply of money for Fed and Treasury discretionary use. The US Secretary of the Treasury and President Roosevelt set the gold price higher at their daily breakfast together arbitrarily. Higher because to create money then the system required a higher value of gold to have more money outstanding. This is why Roosevelt ordered the confiscation of gold in order to unfold his type of monetary stimulation, his QE. This is what confiscationophiles simply do not know.

Your fears and the outrageous untrue statement by the Scottish hedge fund manager are based on totally wrong reasoning and misunderstanding. Gold was not confiscated because it was going up in price. Gold’s order of confiscation came as a tool of monetary stimulation in order to create monetary creation in order to attempt to increase employment. The order of gold confiscation had nothing whatsoever to do with punishment of the gold holders. It preceded the then big run up in the gold price. Believers in confiscation, because they are incorrect on its basis, are totally wrong in predicting it. Those that predict confiscation of anything gold love sensationalism and benefit somehow from scaring the dickens out of you unnecessarily."

Note 31 Jan 2014: Regarding the physical gold backing client unallocated gold, this gold is on the balance sheet of the Perth Mint, which means the Perth Mint owns the gold and has a liability to Depository account holders. Given our ownership, this means that the State government owns the gold. Part IV only talks about "persons" which I doubt would include State governments.

So for the Federal government to get the physical gold backing unallocated accounts, it would have to use Section 51(xxxi) of Australia's consitution which allows for "the acquisition of property on just terms from any State or person" - so the confiscation would be against the State government and not unallocated account holders directly. This would make it a Federal vs State rights issue and feed any secessionism movement.

64 comments:

Interesting points Bron.I am not too worried about the dormancy issue. Yes, in theory the legislation could be reactivated, but this simply leads to the enforcement issue. Politicians are renowned for drafting and passing laws, and the public service is renowned for attempting to enforce the laws with varying degrees of success. I think a simple review of the effectiveness of tax law would indicate the likely success ratios for gold confiscation. Another word for confiscation would be prohibition as the action of the law would produce similar outputs in terms of observance and enforcement - and look how well it works for drugs.Although very young at the time, I recall the pre 1974 gold regime in Oz lead to some extraordinary bureaucratic puzzles in regard to the prospecting for and the actual finding of gold. It was no simple thing to become a gold prospector, and pity help you if you actually found some ! Nevertheless, it was well known that many holders of gold went this route when they wanted to liquidate some of their holdings. Ironically, if prohibition were to occur, I would truthfully be able to say of my gold, "I dug it up" in response to queries about its origins.Cheers,Keith

PS I find the economic strength argument rather weak - our private borrowings have reached approx 170% of GDP. I'd be inclined to call this weakness, not strength. The recent move by the Government to short the AUD doesn't assist the 'strength' perception.Keith

My comments on the economy are more around saying that if a country's currency becomes worthless then if they also do not have internal natural resources and exports, then they will need to confiscate to have something to trade with. I think the fact that Australia has natural resources means it can trade those for the stuff it needs. This means there should be less need for gold to be confiscated to pay for needed imports. Of course this assumes we will have to live within our means (ie exports) unlike what we currently do.

I do like to differ in your opinion. Yes, it is true that it'll be very unlikely for Federal Government to knock every doors in Australia and confiscate any gold in the citizens possession.

However, today Governments around the world have the luxury of Computer and database which we do not have back in 1930s.

If our government decided to confiscate gold of average citizens. All they have to do is, get their hands on purchase records of every major bullion dealers in Australia and go through the list of big buyers. Gold dealers in Australia is required by law to report to Government of purchases of precious metals above $5000 in value. Most bullion dealers will take your ID and report your purchases to Federal Govt, which means the Govt KNOWS who got what and how much!

"All they have to do is, get their hands on purchase records of every major bullion dealers in Australia and go through the list of big buyers. Gold dealers in Australia is required by law to report to Government of purchases of precious metals above $5000 in value."

You are right about there being computer records these days, but note that the law only requires Australian bullion dealers to RECORD your identity for purchases above $5000, not REPORT them.

Therefore for the Government to confiscate, it will need to personally visit each bullion dealer (there is no central database) and go through their records. This gives you a bit of time.

Anytime you confiscate anything from Citizens you take their rights of property without due process. A mere law approved by professional politicians does not address the fundamental wrong of taking property from individuals.

Gold and oil ownership are your only hedges againt a world full of floating currencies. Not one is pegged to gold. That ended in 1971 when the US went belly up from Vietnam and the LBJ war on poverty. Nixon left the Bretton Woods safeguards behind and the US dollar became the abuse step mother of the world manupulating its currency to cause floods tides of bubble and bust cycles. It is no wonder that the world is crying out for a replacement of the US dollar as reserve currency.

By surrendering gold, you are surrending your hard currency. Gold would not be over $1000 an ounce if the dollar was functioning. In the US, obama and company have spent more, borrowed more than for all of the wars in history combined. Now they tell the world that the dollar is strong. The dollar according to Marc Faber will go to Zero. They are playing with the lives of every economy on earth on an economic theory that has all the validity of global warming. Meanwhile, our oceans have been cooling since 1998!

I believe [any] gold purchase even below 10,000$ is now recorded. At least the last time I bought a few coins from a well known bullion dealer in Sydney my details were recorded in spite of my protests. The dealer gave me a pamphlet which out lines the "Anti-Money Laundering and Counter-Terrorism Financing Act 2006" which makes it mandatory for dealers to keep records of any transaction.

Quote from your link "The AML/CTF Act implements a risk-based approach to regulation. Businesses will determine the way in which they meet their obligations based on their assessment of the risk ..."

The fact is that the law is not prescriptive around ID - it is up to each bullion dealer to "assess the risk" of ML/TF.

The dealer you have mentioned has probably determined that it is easier to simply identify everyone rather than take the risk that when AUSTRAC come to audit him they disagree with his risk assessment. For example, I think it would be reasonable to consider the risk of ML/TF to occur with a transaction under $2000 to be low.

I think your bullion dealer has taken a risk based approach, just that the risk he is assessing is not ML/TF, but regulatory risk!

I think we need to be clear about the Australian economy. It is one of the healthiest in the world and officially rated as extremely low risk. It is a resource / commodity rich country.

Australia's net debt is projected at LESS than 10% of GDP reported by Mr Gruen Treasury in February 2010.

Compare this to other other developed countries where it is 90% plus. Even China has a debt of 100% of GDP when provincial government debt is accounted.

The only downside to the Australian economy today is it's housing 'bubble', HOWEVER it is very different to the USA as Australians on average have a surprisingly high degree of equity in their homes. Thus the capacity for a radical drop in price followed by bankruptcies by banks or individuals is greatly reduced.

The short term concern to Australia would be problems in the Chinese/Asian economies. But not to the degree of a great recession.

It should be some comfort that if Gold is confiscated their is provision for compensation, which should be according to law fair and reasonable - as that what compensation means.

There is not much you can do against any determined government anywhere in the world if things got so bad they needed to confiscate gold. They would use the parliament in the absence of existing mechanisms.

The only thing we can really worry about is the safety/credibility of the people we buy gold from and that it is really held.

In my opinion the Perth Mint is about as good and safe as you can get if you want unallocated gold.

And really, collecting and trying to keep safe the gold/silver yourself is also at high risk.

In a depression expect to have an increase in fraud, cons, and robberies. You would prefer the mint to store it.

Q: "It seems that to minimise the risk of confiscation in Australia one should hold silver, preferably as bars, as the existing legislation does not cover the confiscation of silver. Would you agree with this statement?"

A: Yes, I think silver bars are a loophole in that they are not picked up by the confiscation part because that is just for gold, nor the coin/currency recall.

Q: "Also, what would you see as the potential mechanisms and timescales for future confiscation of gold and silver and as such would there be any form of advanced warning? For example, Professor Fekete suggests that the basis would give an early warning signal that physical supply is getting tight and the risk of confiscation is rising. However surely a cunning enemy (government) would ensure that gold would be confiscated without warning before any confiscation or default/devaluation occurred ala Roosevelt 1933? But does an act of parliament have to be enacted before silver can be confiscated, giving ample forwearning?"

A: I really don't think the Government is going to be bothered about silver at all, coins or otherwise. Gold is more strategic from a trading point of view and value. Plus there would be little private stocks of silver by my guess so easier just to nationalise the mines that produce silver, although I think they'd go for oil/gas first, that is where the money is.

I don't think there is a direct relationship between tight physical market and confiscation. If the economy is going OK but gold price rising because everyone wants physical, there is probably no confiscation threat. The real threat is how badly short money the Government is. Possibly a lead indicator of this is tax increases, or maybe even an increase in royalties on gold mining?

Q: "If one felt that the risk of confiscation was rising, in your opinion what would the risks be in converting to fully allocated form and taking possession? In this instance you could still be identified as the owner. Would you have the feds on your doorstep demanding return of the gold, and in this instance would a suitable defense be that the gold had been lost or stolen? Perhaps it is an extreme example, but in the event that PM's are confiscated, all existing holders who do not return their metal would be made instant criminals."

A: Certainly even if you suspect that confiscation is going to happen, then it is difficult to acquire small amounts of PMs over the period of time before it happens.

I think the risks of talking delivery and being harassed by the police are about the same as leaving it as unallocated and having the loophole changed and certainly less than leaving allocated with the Mint, where it will be definately confiscated.

I'm trying to do a bit of my own checking and so thought I'd download the Reserve Bank Act to read the confiscation clauses for myself but I can't find the clauses that you're referring to on the downloadable form of the act via the Austlii website (http://www.austlii.edu.au/au/legis/cth/consol_act/rba1959130/) so I'm wondering where you obtained your copy of this information and whether if I buy a hard copy of the act from a legal bookshop it will still have the suspended clauses removed or if I need to somehow find a pre 1976 hard copy of the act?.. Many thanks in advance if you're able to help.

The link you have given is the Reserve Bank Act 1959, whereas the link in the article (http://www.comlaw.gov.au/ComLaw/Legislation/ActCompilation1.nsf/framelodgmentattachments/18B20C78549DF1DFCA25747F007CA3BA) is for the Banking Act 1959.

This was the version I worked from when initially researching the issue. However if it probably better to go to the home page of the Act (http://www.comlaw.gov.au/comlaw/management.nsf/lookupindexpagesbyid/IP200401309?OpenDocument) for the current version.

While it is empty at the moment I'd be happy to entertain any quality joint ventures.

I envision that "monetary jewelry" to be any jewelry of a quality at or over 22 1/2 karat gold, including .999 and .9999. While some would say: "ok, the .9375 can be made into true jewelry such as beads and items that are routinely made in Vietnam, Cambodia and Thailand, it will be possible to use the very soft .999 as long as one does not rely on the item for structural integrity. This can be done by many means including for instance 1 gram or 3.11 gram (1/10th troy ounce) beads strung on tigerwire, or items encased in a stronger material. The possibilities are endless.

If the doomsday currency scenarios play out, especially if hyperinflation or severe devaluation of currencies occur this sort of items could be both non-seizable and usable as tender if identifiable and precisely made.

It is not difficult to imagine simple beads with engraved designs or granulated designs.

Impressed designs would work best as the starting "tube" could be made to weigh precisely 1 gram, or 1.56 grams (1/20 troy ounce) or 3.11 grams (1/10 troy ounce) a rolled (non-patentable as "prior" art)would stay the same weight regardless of the extent of the impression.

Therefore necklaces or bracelets could be made and if the owner wanted to exchange, let's say 2 grams of .999 gold, it would be a simple matter to remove two items from the necklace.

Plain beads or tubes would not work as they lack significant artistic design.

In my opinion it is not a matter of "if" it is simply a matter of "when."

I enjoyed the article, thank you, this with the new tax scheme has soured my potential for any investment in Oz, though I'd still love to punch a hole at a likely spot in Coober Pedy, or Andamooka just for fun.

Thanks for your comment. My comment is referring to the potential issue of confiscation and specifically about privacy. Just because one wants privacy does not mean they are doing anything illegal.

Buyers who may be concerned about the security of the records of their bullion dealer have a valid right to do anonymous private transactions. Such concerns could include hacking into the dealers records, maybe compromised/criminal employees, or just low physical security where a criminal may break into a dealer not for metal but for the records of who they have sold metal to.

In such cases, wishing to keep purchases under $5000 is a valid safety strategy. I would note that in any case the cash withdrawals from the bank to effect such a strategy could result in reporting by the bank to AUSTRAC if they thought it was structuring FOR THE PURPOSES of money laundering.

Purchasing under $5000 for the purposes of privacy is not illegal in my opinion.

That's a fair enough position, and I do get where you are coming from.

Conversely, I don't know how Austrac work, but I am not sure if they would share your view. I see them as one of these crazy authoritarian departments that would much prefer everyone to live in a police state.

But I haven't had any direct experience with them. Perhaps they aren't like that at all. Their policies seem to contradict the the idea of 'forgiveness' or 'innocence through ignorance' though.

In my dealings with AUSTRAC they are not "authoritarian departments" and are just interested in criminals.

The whole pitch of the new AML/CTF law is risk based, which means each business can make its own assessment of what they consider the risk that their products may be used by customers for money laundering. It is actually a very unauthoritarian approach, because it is not prescriptive.

The very debate you and I are having is an example of why AUSTRAC went down the risk based approach, because they realised they were not experts in every industry and each business within industries. They leave it up to a business to know what customer behaviour is dodgy and report it.

The self regulation approach could be abused, but businesses are aware that if AUSTRAC come and audit your processes and you do not have reasonable justification for why you considered certain products/customers or specific transactions as low risk or not dodgy, then they will come down hard.

Good comment by goldpelican at http://www.perthmintbullion.com/blog/blog/10-10-13/Nothing_To_Fear_From_ID_Requirements.aspx#comments

"Attempted confiscation of personal precious metal holdings in Australia would be impractical compared to diverting mining production. Any possible personal confiscation would at best follow a model demonstrated during the firearm buybacks in Australia - voluntary handover during a "buyback" amnesty period. During the two recent gun buybacks in Australia (1996/2003), firearm dealers were not requested to turn over sales records for the purposes of tracing prohibited weapons in the community that may not have been surrendered, so the likelihood of a "dealers sales records" tracing model being adopted for something as benign as inert precious metals is inconceivable."

Some good points in this comment on Silver Stackers http://forums.silverstackers.com/message-94561.html#p94561

Remember water restrictions? This was a great test case on how powerful community policing can be. EVERYONE was scared to water their lawns and let the gardens die off rather than face harsh criticism by the neighbour. In fact - if I remember correctly, one guy was actually assulted and killed (in Vic?) for watering his garden on a "non watering day". If you create a threat/enemy - the community will respond (because of thier percieved power) eg "I had Jack next door locked up cause he was doing the wrong thing". This was precisely the genius tactic Hitler used.... he gave young poor peope a fantastic official looking uniform and gave them the authority/responsibilty to (insert barbaric action here) for the sake of the Fatherland (ok, I paraphrased a bit - but this was essentially the story).

Bottom line:

If the powers that be decided to implement a gold compensation scheme (regardless of why), you bet'cha they would be very effective in aquiring a significant percentage of privately held wealth.

....(sorry to drag on but,) As mentioned in the article - the tactic would simply be to offer market rates+ (say $1500 fiat/oz) and this would catch the vast majority - have a use by date - then a penalty date - then a confiscation date - and then massively deflate the value of fiat. (Sorry to mention G.U.N.S GP) but this is precisly what happend with the "Buy back scheme". Same old system/same old pattern.

Some good links from this commenter https://www.kitcomm.com/showpost.php?p=1272169&postcount=14

Do a little history research on the Newspaper Archives from the early 1930's and you will learn that anyone who didn't turn in their gold to the government was labeled a "Gold Hoarder" and was hunted by the government. I found plenty of articles just on Time Magazine's website that back this up. They did not just go after people who had gold coins, but bullion bars also. Here is an article about one man who lost his gold that was stored by Chase Bank. The second link is the followup to his court case. Note that the court ruled that, "The right of the Government to take private property of any kind when it is deemed necessary by the appropriate authority for the public good.". So it is naive to think, "It can't happen in America".

As such there is an inherent danger and opportunity in holding gold. It is value which cannot be taken through debasement. It allows you to stand apart from the masses who lose a percentage of what they own every time more currency is injected into the system. In standing apart, you assume your own responsibility regarding how you choose to help those who cannot bear the losses they have suffered. There are times when to be seen not to be ‘chipping in’, will not be tolerated.

When currencies fail, for fail they do; value flows back into gold. If you hold gold, and gold is now worth fifty times as much currency as it had been, where does that leave you? Where does that leave you when those around see the value of their savings drop to a minor fraction of what they were? What responsibility does that place on your shoulders? Is that value yours?

But consider the other questions, that those without gold would be asking at that point.

What just happened to me? Why did this happen to me? Who did this to me? Who benefited from my loss? Where can I go for help?

In times past, the answers to those questions lead to lynchings, riots and the guillotine. Consider carefully the way forward.

Supplies into London will come from countries other than those buying their own production into their reserves. We do expect that more and more nations [such as in South America], will buy their own production in the future, further depleting supplies to the ‘open market'. This complicates matters because it will lead to virtually no rise in supplies to the main physical markets of the developed world or even to a fall in ‘open' market supplies. With London as the foremost of these markets, we can expect the gold price to reflect the falling supply from countries not buying their own production [like South Africa]. For instance, if global supply, overall stands at 2,500 tonnes and China and Russia take off all their local production, supply to the ‘open' market will fall to [340 plus 210] 1,950 tonnes. The net result will be that the gold price will be based on a supply 22% lower than total global supply. This present day reality defines the power of central bank buying over the gold market and the gold price. There is no fighting over price, no competition between government and the ‘open' market. Central banks will simply instruct local producers to sell their gold to them at market related prices.

By diverting gold into reserves from local production, a central bank achieves the same result as a partial gold confiscation would have done. The difference is that there is a willing seller in the gold miners. The advantage over an act of the direct confiscation of citizen's gold is that it allows citizens to continue to acquire gold in the open market while the central banks remain unseen buyers. Central banks are showing that they want the total national stock of gold [official plus private] to rise as high as markets will allow. Following this route, any price rises are then not seen as caused by central banks, but by an unfettered market where higher prices are accepted across the world. The ongoing buying by the global retail sector adds to the ‘national' quantity of gold owned. In the event of a dire currency crisis or danger to the global markets such a gold buying structure still leaves the option of confiscation of its citizen's gold in hand. This adds a new dimension to the concept of gold confiscation and puts it firmly on the map.

Think about it. In a circumstance where the value of gold is so great that some countries are confiscating it, a country that is as enormously resource rich as Australia is LESS likely to confiscate gold.

Why? Because in a world of extremely high gold prices the prices of ALL commodities - both mining and farming - will be enormous.

In such a circumstance the last thing the Australian government would want to do is create massive instability in the Australian commodities markets. They will want to create the opposite - massive stability. They would do this in order to simply ride the wave of wealth.

Of genuine risk in such a world is the threat of invasion. Think about it - if 3.6 billion asians on our doorstep are starving and poor and they see Australia with a small population and huge natural resource reserves - both mining and agriculture - would you not realistically believe there to be an enormous desire for them to "get some" from those Australian hoarders?

I believe the potential of such a threat to be so great that sometimes I wonder if we should arm ourselves with nukes.

This all might sound crazy now but in 10 years it may become reality.

As an example, if you had suggested the Global Financial Crisis before it occurred you would have been laughed off as a lunatic. And yet the very few people who predicted the GFC state that you 'aint seen nothin' yet. John Paulson made many billions of dollars by shorting the US sub-prime market prior to the GFC occurring. Where is his money now? Gold. That has to tell you something right there about where everything is going.

MacFarlane addressed the issue when Australia sold its gold reserves down to abt 80 tonnes in 1997 (?) along the lines of Australia being a major gold producer the reserves could be replaced quickly from mine production.

“The Reserve Bank of Australia conducts monetary policy, works to maintain a strong financial system and issues the nation’s banknotes. The Reserve Bank commenced operations as Australia’s central bank on 14 January 1960.” From the RBA homepage.

If the RBA is to issue banknotes, why would the RBA have an interest in gold? In confiscating all the gold, it has to be delivered to the RBA. The RBA is a central bank run and owned by the banking Cartels of the world. Why are we surrendering the gold to the RBA and not to the Government? The RBA is a private and separate institution from the Government. The RBA is quite cunning to put everything in writing as though it is law and stamped with their authority. They are so cunning that they only produce the notes which is considered to be worthless as it is only plastic or paper made money, whereas they get the Government to make the relatively more expensive coinage. Likewise the Perth mint to make the expensive gold and silver coinage. The RBA just needs to slap ink on paper and say it is worth more than gold and we accept that as it is good.

I like the fact that from the early 1900’s that we had the use of gold sovereigns and sterling silver coins. The fact is the gold has already been confiscated through inflation. For example and using round figures, the gold sovereign is worth about $400 in today’s terms, about 7.3 grams of gold. Still in existence which is good to see. One Sovereign is one pound, and they had notes where it said it is redeemed, 1 pound for gold coin. Now the sovereign ceased around 1933. The pound note still continued up to 1966, in between the silver content halved in the 1940’s. So it comes to 1966 implementing decimal currency by the RBA. Now as you see on the RBA website museum the $1 pound note was swapped for the $2 note. In the 80’s the $2 note was swapped for a $2 gold coloured 8 gram copper coin. We have already had confiscation through increments through history. They have transformed a gold sovereign into copper coin and about the same weight and colour. Transforming $400 to $2. But hey, nobody cares anyway.

The 50 cent silver coin was stupid for the government to produce as it was a true anchor to the decimal currency but the RBA got rid of it in just the first year. As silver is difficult to manipulate in price, and now with decimal currency being freed, the decimal balloon can continue to be inflated into oblivion.

Now the hindrance of the copper coins is coming upon us and the confiscation of copper nickel bullion is near. The banks have already prepared their banks with large swallowing machines. Why would they pay so much for these expensive machines for the worthless pesky 5, 10 and 20 cent coins. The bullion value of these coins are about to exceed the face value. The media will prepare a propaganda campaign, finally we can get rid of these nuisance coins and every one will cheer and race to the bank to throw in the worthless copper nickel bullion into their machine. The banks are doing us a favour, right?

To anonymous first of all the rba is wholly owned by the government. Second you can't confiscate gold through inflation you increase it's value with inflation. Third the fact that the metal are coins are made of are exceeding their face value is up to supply and demand of those metals and yes it is a good thing to replace these coins with metals which aren't as valuable, otherwise people will hoard these coins melt them down and sell them for for their higher metal value how would an economy work if people start taking coins out of the money supply and melting them and selling them in the free market money is there to finance transactions, a unit of account and a store of value not for people to make speculative gains on it that's what commoditie markets are for

As I understand it the Perth Mint is semi government in its ultimate 'ownership', but how would say Guardian Vault in Melbourne or Reserve Vault in Brisbane be handled given they are purely independent? Could the Government demand entry to confiscate gold?

Perth Mint is 100% government owned. In any case, how unallocated and allocated are treated by a confiscating government would not be different based on whether the custodian was government or private owned IMO.

Disagree with the RBA as government owned. They make us think that it is. With Gold there is no inflation, fiat paper money is perpetually devaluing giving us an illusion that there is inflation. Watering down the beer and hoping the pundits don’t figure out what you are doing. The metal coin face values should never be changed and should be referenced to a benchmark. The face value of a 1 ounce silver should remain FIXED at $1 and should not have any other face value. Worldwide you will have equal currency exchange, dollar for dollar. The kookaburra will have equal value to the liberty dollar having equal value to the Canadian silver dollar. This would eliminate the money makers who manipulate markets on the currency exchange. Perth mint made $5 silver coins at the start, but thankfully they went back to the dollar face value. The one ounce gold coins should be either $20 or $15 face value which should be determined by standard weights and measure. Now it is at crazy 62 to 1 Gold silver ratio. This has totally drove silver and gold into an investment instrument rather than a money instrument.Norfed went in the mistake of upstamping their coinage and were shutdown by the FBI.

The metal exceeding the face value is not because of supply and demand, but because of the fiat is devaluing at a rate that the bullion fiat value exceeds the face value of the coin. You need to put it in perspective. 50 cent coin was actually worth 50 cent bullion in 1966. (80% silver)50 cent coin todays market is about $7 bullion20 cent coin was hypothetically 2 cents bullion in 196620 cent coin todays market is approximately 12 to 14 cents bullion.

People would take the money out of supply, yes (unless the government or RBA gets it first), but not necessarily they will melt the coins down and sell them on the free market. Otherwise all those Kookaburra $1 coins made by the perth mint would be instantly melted down and sold as bullion, but we know that is not the case.

The most honest money system there was in Australia I believe with coinage, was in the time of 1910 to 1930s, With all correct Gold/silver/copper ratios.

The RAB is owned by the Rothchilds as every reserve bank around the world . In the last couple of weeks the Australian Government gave the RAB $8000000000 ,yes that's billion dollars to a private bank.

Bron, I didn't credit my tweet to you as I heard about Part IV from a woman in Melbourne that deals in bullion. I then went and did my own research and found Part IV. I then researched it further to see it anyone else had done anything on Part IV and found this post. I did check this post to see if I was anything missing and the only bit that I added was the bit about unallocated potentially not being deliverable based on your comments.

Thank you for taking the time to pen your enlightening blog. I'd be grateful if you could field a question concerning me;

In your discussion of gold and silver coin confiscation powers, which I've quoted you on below, would foreign minted coins (legal tender in a foreign country but not in Australia, nor issued under any Australian legislation) also run afoul of confiscation, specifically; silver Canadian Maples?

Thank you Bron.

"Section 23 states that "the Governor General may, by Proclamation, call in any coins issued under this Act or the repealed Acts before a date specified in the Proclamation."

So if the West Australian Government attempted to make the Mint's coins legal tender to stop the Commonwealth's moves to confiscate gold, the Commonwealth could just call those coins in… the implication that it can be used not just to recall gold coins but also any Perth Mint silver coins. Note also that any proof/collectible coins issued by the Perth Mint are also done so under the Currency Act 1965 so numismatic coins clearly have no protection. Therefore, while coins have advantages when moving between countries due to their legal tender status, that legal tender status puts them at risk of confiscation, so one should prefer bars to coins if one is concerned about confiscation."

I wouldn't bother converting any silver into any other form of silver, just keep it in whatever form you have.

Same applies to gold IMO. If a government wants to confiscate they will just create a law to cover gold in any form. Probably the only real protection is jewellery, but that would probably also be limited to some "reasonable" amount of personal jewellery if the government was desperate enough.

Can you comment on the recent development between the Australian Crime Commission now having access to all records (?) from clients of the Perth Mint?

Does this mean that the details of everyone that buys any amount of gold coins or bullion will now go to the ACC?

Some people like to operate below the radar by buying amounts that, until now, were not required to be registered...this is now not the case from what I understand? Apart from one press release I can't find out anything more

The arrangement was established to formalise processes in the potential event that the ACC may require information from the Perth Mint in the future in regards to investigations the ACC may do - no documents are currently being requested and there is no automatic supply of information about our clients to the ACC.

Under the Australian Crime Commission Act 2002 we are obliged to supply information to ACC if requested, just the same as if the ATO requests - we, or indeed any business, has to give them what they require.

Your transactions are not systematically and continually reported and section 74 of the Gold Corporation Act 1987 does prevent us from divulging information about the business affairs of its customers BUT unless required to by an Australian court or Australian law. We do not have any special immunity from reporting to the ACC, ATO, police and whatever organisations the government has given such powers to - the same rules that apply to anyone you buy gold from in Australia apply to us as well.

On a day to day basis your transactions with any bullion dealer may well be below the radar but please do not think that they are not potentially discoverable if the ACC has cause to investigate you.

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